Microsoft has been weathering some difficult intellectual property (IP) storms these past few weeks. First of all, a U.S. court issued an injunction against the company to keep it from selling a networking feature code-named "Chimney" that Microsoft had planned to release as a part of Longhorn. The injunction came at the request of Alacritech, which claims to hold a patent on the technology.

Then, on a different front, Forgent Networks included Microsoft in the list of companies it is suing for infringement of a patent for a data compression technique used in the JPEG digital image standard. The cause? Forgent gave up trying to get Microsoft to negotiate a licensing agreement for Forgent's patented technology. Instead, it is suing Microsoft for damages.

Eolas vs. Microsoft

But that's not all. In addition, Microsoft is still appealing the decision from 2003 that it lost in the Eolas Technologies patent lawsuit. That's the patent suit that claims that Microsoft stole the technology for embedding ActiveX into Web pages from the University of California and Eolas Technologies.

These patent wars are heating up, with claims and counterclaims flying in every direction. And the question of who owns what is becoming one of the most important issues facing the software industry in the 21st century.

In the Eolas software patent lawsuit, Eolas Technologies successfully convinced the court in 2003 that Microsoft had stolen the concept of embedding ActiveX from a group of researchers at the University of California. These researchers had successfully filed--and subsequently received--a U.S. patent for similar technology, and Eolas wants Microsoft to license that patent.

In the original lawsuit, the court found Microsoft at fault and awarded Eolas $521 million in back licensing fees. But Microsoft has refused to pay the fee--choosing instead to appeal the decision--and now has accumulated another $54 million in interest.

Microsoft's Defense and Retaliation

Microsoft has retaliated with some rather unique tactics. For instance, it has successfully aroused the Internet community by telling everyone that it is going to pull ActiveX embedding out of its Internet Explorer product. Consequently, according to Microsoft, everyone will need to rewrite all their Web pages that use this technology...unless, that is, the Eolas claim is overturned on appeal.

So let's get this straight: Microsoft lost the lawsuit, so it's going to blow everyone's brains out instead of paying the licensing fees, right? I guess you can do that if you're the world's largest software company: Lose a half-billion-dollar lawsuit and stick it to your customers.

So where are we in that mini-drama today? Last month, the federal appeals court reversed a part of the lawsuit--though Microsoft still technically owes $521 million--and the court is allowing Microsoft another chance to prove that it didn't rip off Eolas.

So let's also get this straight: Microsoft lost in court but is allowed to try again to prove its innocence? I guess whining really helps if you're the world's largest software company.

However, in order for Microsoft to prevail against Eolas Technologies' claim for a patent, it will need to prove convincingly that a similar ActiveX embedding technology existed before Eolas filed for its patent in 1994. If Microsoft can find such a pre-existing technology, it can claim that technologies like ActiveX embedding were "prior art," and therefore no patent should have been issued to Eolas.

So what does Microsoft do? It asks the World Wide Web Consortium (W3C), Sun Microsystems, and others to conduct a scavenger hunt. "Find us the missing link to the ActiveX embedding technology!" it says. And guess what! The Internet community has taken up the hunt. I guess when the largest software company in the world says jump, you jump! And when it wants to duck a half-billion-dollar fine, everybody wants to help!

Microsoft's IP Strategy

The irony of all of these disputes is that Microsoft is hardly a victim when it comes to software patents. In fact, Microsoft has been recently expanding its own IP holdings and this month set up a group within its licensing business to sell IP to start-up companies (presumably, the technology it actually invented).

Of course, Microsoft, like IBM, began to see software patents as the way to future riches when it hired away IBM intellectual property expert Marshall Phelps in 2003. Phelps has been busy at Microsoft, helping it follow in IBM's footsteps for applying for lots and lots of software patents. In fact, as of late last year, Microsoft held about 3,600 patents in the United States and more than 1,000 in Europe. It also has several thousand other patents pending. And Bill Gates has said that he expects Microsoft to file for 3,000 more before its fiscal year completes.

Patents vs. Trade Secrets

In the past, Microsoft--like many software companies--used the legal mechanism of "trade secrets" to protect its IP. By declaring software to be trade secrets, companies can avoid the high cost of proving a patent and still get a modicum of legal protection.

Now, instead, Microsoft is taking those trade secrets and applying for patent protection for them. Part of this is strategy is for protection against lawsuits from companies (like Eolas) that are filing similar patents. But the real problem is that the United States Patent Office isn't technically proficient to be able to differentiate what's "prior art" and what's a new software invention.

Very Bad Patent Ideas

As an example, my personal favorite software patent application was one submitted by IBM a number of years ago. The patent was for a software technique to help people queue up to use the restroom on an airplane. I called this the P3 patent: the Plane Potty Protocol! And I liked the idea of IBM forming a study committee to research the market potential for this patent. The thought of legions of systems engineers flying at 30,000 feet and lining up to test out the P3 patent was somehow comforting. But the thought that IBM might actually own the process was another thing altogether.

Fortunately, IBM withdrew this patent application after some rather unkind remarks by a few columnists, but the point is that the requirements for defining a software patent have been pretty loose in the past, while the protection afforded by the law is quite robust.

Patent Protection

For instance, an owner of a patent may prevent all others from making, using, or selling the patented invention. (That's why it was important for IBM to withdraw the P3! Imagine having to pay royalties during a long flight when you really need to use the facilities.) With software, an issued patent can prevent others from utilizing the claimed algorithm itself without permission, and it can prevent others from creating software programs that perform a function in a similar way.

Compare this to current copyright law, which can only prevent the copying of a particular expression of an idea. Indeed, the infamous UNIX lawsuit against IBM by SCO is based upon SCO's claim that it owns the UNIX copyright. The only thing a copyright can do is prevent the total duplication of a software program as well as the copying of a portion of software code. As a result, copyright law can't prevent the creation of a competing software program that utilizes the same ideas as an existing program. That's why Linux can imitate UNIX without infringing upon the SCO copyright.

Patents: Good Protection or Bad Business?

So are software patents a bad thing?

Well, there's a big movement in Europe to keep software out of patent law, and indeed, until the 1980s, you couldn't apply for a software patent in the United States.

But Dr. Michael Doyle, who developed the disputed Eolas patent with two other University of California researchers, thinks there is an important role for patents in software. According to Doyle, the only protection against companies with Microsoft's industry dominance is the process of patenting software. Without patent protection, the technology that software companies develop can be easily stolen by a larger organization with its larger installed base, preventing new innovative products from finding willing customers.

How the Eolas vs. Microsoft case winds up will become increasingly important beyond what it does to the realm of the Internet. Until we can come up with a reasonable way for companies to protect their IP investments, these ownership wars will continue to haunt customers who buy the products. In the meantime, in my opinion, we should be granting patents for software only for a very limited time to protect the invention of new ideas. With technology rapidly advancing by leaps and bounds, long-term patent protection for software creates a tremendous drag upon innovation and leads to a kind of generalized patenting of everything in software. After all, if Eolas can halt Microsoft in its tracks, who else might it stop?

The point is, patents for software should require significant proof of originality and be extremely focused on technical uniqueness, and the U.S. patent regulations don't.

Perhaps Irving Wladawsky-Berger, IBM's vice president of technology and strategy, said it best this month when he commented at the Open Source Business Conference in San Francisco on April 7. Today, the U.S. Patent Office has been simply too lax in granting patents. "Any idiot can get a patent for something that should never be granted a patent," he said in the keynote address. However, open-source technology is "changing the culture of every single business, or at least every business that wants to make sure they are still a business 10 years from now," he said. "If you really want to tap into the communities out there, you need to balance your proprietary approach to IP...with a much more collaborative approach."

Thomas M. Stockwell is editor in chief of MC Press Online.